A new government regulation has left 28-year-old Sunita Devi worried about the future of the baby she is carrying. Devi, who is already showing at five months, is a surrogate mother carrying the child of a single Canadian man. Wearing a yellow shalwar suit and a long, well-oiled braid, Devi is visibly upset as she talks about a memo that India’s Home Ministry circulated late last year to Indian missions abroad, stipulating that gay couples, single men and women, nonmarried couples and couples from countries where surrogacy is illegal be prohibited from hiring a commercial surrogate in India. As of an unspecified date, foreigners who want to hire a surrogate must be a “man and woman,” the new rule says, “[who] are duly married and the marriage should be sustained at least two years.” Now Devi is worried that the child she is carrying can be ultimately handed over to its Canadian father. “I will be carrying this baby for nine months,” she says. “But what if after I give birth, it doesn’t get a home?”

It’s a question that doesn’t have an official answer at the moment. The new regulations have not only raised questions over the future of many babies-in-the-making but also present a major blow to India’s $2.5 billion surrogacy industry. Each year, an estimated 25,000 foreign couples visit India for surrogacy services, resulting in more than 2,000 births. Surrogacy is a bargain in India — running anywhere from $18,000 to $30,000, the service is roughly a third of the U.S. price — and the traditionally lax regulations surrounding the industry have made it a popular destination for couples from countries where surrogacy is not legal, including several European nations and most of Australia. “India was a wonderful hub for surrogacy,” says Doron Mamet, owner of Tammuz.com, an Israel-based agency that has been sending couples to India for surrogacy services since 2008. “The combination of excellent medical facilities and attractive cost brought couples from all over the world.”

The new conditions laid down by India are tough and have thrown a pall over the booming sector. There are about 1,000 registered and unregistered fertility centers in India. The New Delhi–based International Fertility Centre, where Devi is registered as a surrogate, says the new regulations will affect 5% to 7% of their business. Doctors are worried their medical-tourism businesses will take a hit, and surrogates, who get paid about $5,000 to $7,000 for carrying a child to term, are worried that their livelihood is in jeopardy.

Some also question what they say is an uncharacteristically moralistic stand on the government’s part. “No doubt marriage is a sacrosanct institution in India, but it is not so in many Western countries,” says Rita Bakshi, one of India’s top fertility experts, who runs the International Fertility Centre. “Who are we to say that one has to be married to have children?” Since India decriminalized homosexuality in 2011, Mamet’s agency in Israel has sent over 100 gay couples to India. “The Indian society is considered by foreigners as very receptive and very welcoming — whoever you are, you are not being judged,” he says. “The new homophobic rule already affects the prestige of India as an open society.”

In fact, the impetus behind the new regulations is probably less about the sanctity of marriage and more about avoiding legal entanglements with other governments. There have been a few recent cases in which surrogate babies have been caught in legal limbo, including one particularly high-profile case in which a Norwegian woman has been stranded for over two years in India with twins born by an Indian surrogate. After mandatory DNA tests showed that the children were not biologically related to her, the Norwegian embassy in India refused to issue her travel papers for the twins. The case stretched out until last year. And even when the babies are allowed to travel back to the parents’ country of origin, it is sometimes the beginning of other complications. In 2010 a French gay man, who had twins through an Indian surrogate, was allowed to travel back to France, where surrogacy is illegal. He is still engaged in a court battle with the government that took away the twins and placed them in foster care.

Critics of surrogacy are relieved to see the Indian government taking some steps to regulate this growing industry. Having long disparaged the business as an exploitation of poor Indian women by wealthy foreigners, these experts say the new rules will help ensure that surrogate babies are placed in stable homes. “When couples have been together for a few years, or are married, they tend to have made a commitment to stay together,” says Olga van den Akker, a professor at the Middlesex University London. “This will be in the best interests of the child.”

Laws regulating commercial surrogacy are at best fluid, differing widely from country to country. In other nations where commercial surrogacy is legal, like Russia or Ukraine, single parents or gay couples are allowed to hire a surrogate. In the U.S., regulations vary from state to state; in Arkansas, for example, single people are allowed to hire a commercial surrogate, but the rules are ambiguous when it comes to gay couples. In California, there are no restrictions on the service based on sexual orientation or marital status.

That India’s government is serious about the new rules is evident. Fertility centers all over the country have been asked to submit a list of their ongoing surrogate pregnancies by Feb. 18. In Israel, meanwhile, Mamet is drawing up his contingency plans. Next week he has a meeting with 200 would-be parents to present his post-India surrogacy plans. “All of those couples would have come to India and leave $30,000 to $50,000 each,” says Mamet, who has spent the past month traveling in other Asian countries to come up with new options for clients. “Now they’ll do it elsewhere.”